Confidence major missing link in economic recovery

Source: Confidence major missing link in economic recovery – The Zimbabwe Independent

BUY Zimbabwe is a campaign meant to promote quality, competitiveness, production and consumption of local products and services. The campaign has, however, faced a number of challenges, among them the importation of cheap products, smuggling and doubts from a skeptical consuming public. Zimbabwe Independent business reporter Kudzai Kuwaza (KK) caught up with the deputy chairman of the Buy Zimbabwe board of trustees and chairman of the business affairs committee as well as past president of the Zimbabwe National Chamber of Commerce (ZNCC) Oswell Binha (OB, pictured) to discuss, among other issues, the challenges the campaign has faced, the impact of Statutory Instrument 64 (SI64) and the growing calls for the country to adopt the South African rand.

Find excerpts below:

KK: The Buy Zimbabwe campaign has been criticised for creating a monopoly for some products, leading to steep prices for consumers. What is your take on this?

OB: Buy Zimbabwe is a competitiveness driver that pushes for the production and consumption of quality goods and services. There is no nexus between the work of Buy Zimbabwe and price increases that you could have seen in the market.

The upward price trend we have seen in the country of late has been mainly a cost-push inflation exacerbated by increases in transactional costs due to shortage of foreign currency.

Commitment to consumption of locally-produced quality products does not only result in boosting capacity utilisation in productive sectors but acts as a comprehensive tool to create formal jobs, attract both domestic and foreign investment in our productive sectors.

Countries which have developed sophisticated industrial value chains ensured that citizens in those respective countries developed a propensity for consumption of their local products as a building block to producing for exports.

KK: Would you say the introduction of SI64, which bans imports of certain products, has benefitted your campaign? If so, how?

OB: SI64 has always been determined as a short-term measure to manage imports through removal of 43 product items on the Open General Import Licence. These products were carefully chosen after taking into account their potential market position, production possibility and impact in the economy. Notwithstanding the controversy regarding the SI64, the impact of the instrument together with previous measures, for example, measures which were previously applied to the cooking oil and dairy sectors, have yielded positive results which inter alia include:

Increase in capacity utilisation and employment;

New investments as in the case of D’Lite, Trade Kings, etc; and Improvement in value-added tax (as reported by the Zimbabwe Revenue Authority).

In as much as the measures have successfully worked to save the selected sectors, they cannot foster sustainable solutions to Zimbabwe’s competitiveness problems because the measures by themselves are temporary and are constrained to cover the entire economy due to bilateral, regional and multilateral agreements assented to by Zimbabwe.

I must also not hasten to indicate that SIs are reactive tools to correct unforeseen negative pressure points in the economy. Zimbabwe needs a long-term national economic vison with clearly defined economic development benchmarks, investment security, certainty and consistency.

KK: The SI has also been criticised for promoting protectionism. What is your view on this?

OB: It is fair criticism, I must acknowledge. This criticism may be emanating from sectors whose economic activities largely depend on imports. However, it is unfortunate if the instrument is viewed as outright protectionism. Instead, it is specific, measurable, attainable, realistic and a time-bound measure designed to achieve industrial growth.
While the principle of import substitution is sometimes viewed in a retrogressive manner in that it is seen as being counter to the central tenets of globalisation, the situation in Zimbabwe demands that we rely on it to offer temporary protection for our industry to counter the surge in the disruptive imports of cheap and “dumped” goods which can easily be produced locally.

Buy Zimbabwe thus provides an ecosystem of survival. This is a hopeful message in a recession because it’s not about how much money you have got, but how much you can keep circulating without letting it leak out.

KK: How has smuggling of products into the country affected your campaign?

OB: Smuggling is a perennial challenge. It has always been there and it is likely to continue, given the porosity of our borders and weak imports management infrastructure, systems and procedures. Its negative effects on the campaign are the same on the economy. It just distorts the market. It is our hope that the authorities shall work towards strengthening all institutions entrusted with superintending over imports management.

KK: What have been the challenges to the Buy Zimbabwe campaign?

OB: The biggest challenge has always been a complete buy-in from the generality of Zimbabweans. There is a clear lack of understanding on the generality of our consumers on how economies work hence the insatiable appetite for imported goods. Few consider the effects of purchasing on the local economy, on the ability of spending to increase wealth and jobs in local communities and regions, often referred to as the “local multiplier”.

As a result, the major strategic tool at the disposal of both public and private bodies often goes unused. For instance, government at various levels spend millions on economic and business development, and tens or hundreds of millions on procurement, yet these efforts are rarely co-ordinated to meet the same end. The wider economic impacts of purchasing are rarely taken into account, partly because there is lack of awareness and data regarding the different economic impacts of local and non-local businesses.
Secondly, Zimbabwe is a high-cost producing country and that makes most our products uncompetitive. This is also worsened by the low economies of scale, given the dwindling levels of capacity utilisation.

KK: As an industrialist and former president of the ZNCC, what is your view on the proposal in some quarters to re-introduce the Zimbabwe dollar backed by gold deposits? Some are calling for the country to adopt the rand as a currency. Is this feasible in your view?

OB: Zimbabwe’s economic challenges have never been a monetary phenomenon. Any monetary regime thrives on confidence, which is the major missing link in this economy. This country has a production challenge; we are consuming more than what we are producing.

We have a regime of dead economic enablers which continue to drain the fiscus hence crowding out investment in productive sectors. We have a crippling and increasing national debt which is militating against the country’s ability to access cheaper external funding. Continued supplementary budgets are symptomatic of the appetite of the state to spend outside the means of the national fiscus. The country has an enormous confidence gap.

Efforts for confidence-building initiatives and creation an environment of trust and certainty are key. These are the fundamental challenges that require attention forthwith. There is no magnitude of tinkering with the colour, value or type of currency that will bring real solutions to these real problems.

KK: A survey has found that companies are losing between US$20 million to US$40 million a month in lost production hours due to workers queuing for cash. How serious is the cash shortage problem for industry?

OB: Indeed, this is a serious albatross on the industry in terms of working hours lost. The cash challenge emanates purely from an unbalanced current account, where we are importing more than we are exporting. Secondly, because of the confidence issue, I strongly suspect people are hoarding cash which they then offload on the informal market where returns are very lucrative.

Utilisation of financial innovations has had a slow uptake. Plastic money, mobile money and internet banking acceptance, though noble, suffered a serious setback because their introduction was gravely misunderstood by the consumers, among other setbacks. The challenge has not only negatively impacted productivity in industry, but has heavily reduced disposable incomes.

KK: How is industry coping with the current liquidity crisis and how has this affected trade and retooling?
OB: Again, this is a serious challenge. Most micro decisions, at company level, have now been surrendered to the monetary authorities. It has stalled production to a significant extent due to slow the movement of external payments. In some instances, it has also contributed to the cost premium as companies sometimes have to access the money at a very high premium.

KK: Government has put in place measures to improve the ease of doing business and yet foreign direct investment has declined from US$545 million in 2014 to US$319 million last year. Why, in your view is there a contradiction between government’s efforts and falling investment inflows?

OB: Indeed, the country needs a policy framework that supports enterprise development and innovation by reducing bureaucracy and cost of business. However, this is not a sufficient and necessary measure as it does not deal with historical legacies which have been causing capital flight and diversion.

A policy framework that attracts inward investment and focusses on restoring confidence in the economy is required. Such a policy should be drawn from consensus that entrenches and strengthens recovery fundamentals and may require not only genuine political will and key institutional reforms, but deliberate measures to eradicate economywide corruption, graft to engender improved good corporate governance.